There are many different reasons that a person might file for bankruptcy. They could be facing significant medical debt, mortgage debt, a failed business, or even credit card debt. If you’re considering filing for bankruptcy, it is important to think about the timing. Filing too early or too late could limit your options or cause you to lose property you would have otherwise been able to keep. In Wiggam & Geer’s latest blog, we’re answering the question, “Is there a ‘good’ time to file for bankruptcy?” This blog will only address individual bankruptcy cases where the person primarily owes consumer debt, such as credit card debt, medical bills, residential mortgage debt, or personal car loans.
Chapter 7 Bankruptcy
The first step in understanding when to file bankruptcy is to understand the different types of bankruptcy. When a person becomes overwhelmed by their financial debts, they typically seek relief by filing for Chapter 7 or Chapter 13 bankruptcy. It all depends on their income and financial needs. Those who have few assets and spend most of their income each month will typically decide to file for Chapter 7 bankruptcy. This chapter, also known as a “straight” or “liquidating” bankruptcy, will discharge qualifying debt within four to six months without the need to repay creditors.
Chapter 13 Bankruptcy
Alternatively, Chapter 13 is the best choice if you want to avoid a home foreclosure or vehicle repossession and need a plan to pay back the missed payments over time. To file a Chapter 13, you must have a wage or some form of income to afford your plan payments. In this chapter, the filers pay their discretionary income over a three- to five-year repayment plan period in exchange for debt relief. Whether your plan is paid out over three or five years will depend on your income and how long you need to pay off certain debts, such as mortgage arrears or recent tax debt.
Beneficial Times to File for Bankruptcy
Very often, filing for bankruptcy cannot wait for a specific time of year, because the individual is dealing with a major and unexpected life event. But there are ways to time your bankruptcy so that it puts the filer in the best situation possible. For consumer cases, the first quarter of the year (January through April) tends to be a popular time to file for bankruptcy. People who are expecting an income tax return in the beginning of the year will usually wait to file bankruptcy so that they can use their tax refund to pay for their filing fees, attorneys fees, and other court costs. Whatever the case may be, it’s best to spend as much money as possible on ordinary bills (mortgage/rent, food, car repairs, utilities, etc.) prior to filing, so that Chapter 7 trustee can’t seize those funds to pay your creditors. It’s best to consult with a bankruptcy attorney prior to filing to ensure you are taking the right steps to protect your property in a way that’s permitted by the courts.
Reasons to File for Bankruptcy Sooner
If you are worried about your assets or property being seized by creditors, you may not want to wait until the ideal or popular time to file for bankruptcy. When you file bankruptcy, an automatic stay arises that prevents creditors from taking any type of collection activity against you. Garnishments, foreclosures, phone calls, letters, lawsuits, or any contact whatsoever regarding your pre-petition debts are forbidden. Here are some situations in which you may consider filing sooner, rather than later:
- Your wages are being garnished. We often receive calls from people whose wages are being garnished, and they didn’t even realize a lawsuit was ever filed against them. Unfortunately, the only quick and relatively inexpensive way to stop the garnishment is to file bankruptcy. It’s always better to file before you are garnished. Under Georgia law, a creditor can garnish up to 25% of a person’s disposable income (gross income minus income taxes required to be withheld), which puts a huge strain on your ability to pay ordinary bills, much less an attorney to help you file bankruptcy.
- You have been unemployed for a long time, and you do not have unemployment benefits or savings. The best time to file bankruptcy is when you have reached “rock-bottom.” If you haven’t been employed for a few months, it means you’ll likely qualify for a Chapter 7 bankruptcy rather than be forced into a payment plan through a Chapter 13. If you have less than $10,000 in the bank, your attorney may be able to use Georgia’s wild card exemption to protect your cash.
- Your home is about to go into foreclosure. In a Chapter 13, we can file a plan that allows you to pay your missed mortgage payments back over five years. If you missed $12,000 worth of mortgage payments, you’d pay around $200 per month for 60 months to catch up on your arrearage.
- Your vehicle is about to be repossessed. Even if your vehicle has been repossessed, we can get your vehicle back for you if you file a Chapter 13.
- You are being sued. Bankruptcy is the fastest way to get rid of a lawsuit, although it does not prevent a person from filing a divorce. Bankruptcy also does not prevent any types of criminal proceedings.
- You want to file a Chapter 7 and are about to start a much higher paying job: Passing the “Means Test” is necessary to qualify to file a Chapter 7, but you want to file before your salary increases. If you make more money compared to others who live in your area, you may not qualify to file a Chapter 7. Wiggam & Geer works with our clients to find the best time to file. If they come to us quickly enough, we can properly time a filing to come before a big pay increase, so they have a better chance at qualifying for a Chapter 7.
Reasons to Wait to File Bankruptcy
- You paid a relative back within one year: If you’ve paid an insider (typically a family member or business partner) back within one year of filing bankruptcy, the Chapter 7 trustee can sue that person for the money they’ve received. It’s called an Avoidable Transfer or a Preference Action against that person. The bankruptcy code is designed so that people do not repay their loved ones to the detriment of their other creditors. In other words, you can’t “prefer” one creditor over another. In the case of non-insider creditors, any amount over $650 can be clawed back by the Chapter 7 trustee. In Chapter 13 cases, the Chapter 13 trustee will rarely sue your family member for a debt paid within one year, but they may require that your plan pays your unsecured creditors at least as much as you paid your family member.
- You are starting a lower-paying job. If you are trying to qualify for a Chapter 7 bankruptcy and your current job’s salary precludes you from doing so, waiting to file until you start your new, lower paying job may help you qualify. Conversely, the lower your income is within six months of filing your Chapter 13, the less you’ll be required to pay your unsecured creditors.
- You have tax debts that could be discharged if you wait. Income tax debt may be discharged, depending on when your tax return was due, when you filed the return, and when your taxes were assessed. Certain events, such as making an Offer In Compromise or receiving an extension of time to file your tax return will extend these deadlines. If you have significant tax debts, be sure to consult with a bankruptcy attorney who has experience with tax debts.
- You took a cash advance or recently purchased a luxury good. If you took out a cash advance of more than $1000 (as of February 2020, this standard may increase), there is a presumption that you cannot discharge this debt. Also, if you’ve purchased a luxury good or service on credit valued $725 or more within 90-days of filing bankruptcy, it is presumed to be non-dischargeable. Unless it’s an emergency, it’s best to wait to file until the appropriate time period has passed.
- You are filing a Chapter 13, purchased your personal vehicle within the last 910 days, and owe more than the vehicle is worth. In a Chapter 13, you can “cram-down” a car lender’s note to the value of the vehicle and pay that amount through your plan, rather than what was owed pre-petition. For example, if you have a car worth $5,000 but owe the lender $9,000, Chapter 13 allows you to only pay the lender back $5,000 through the plan and you get your title back at the end. This only works if you purchased your car through your lender more than 910 days prior to filing bankruptcy. If you are close to that date, it might pay to wait on filing for bankruptcy.
- You purposely concealed, transferred, destroyed, or removed your property within one year. The most important part about filing bankruptcy is getting your discharge that wipes out all your pre-petition debts. However, if you are found to have intentionally moved, destroyed, or concealed money or assets within one year of filing for the purpose of delaying or defrauding a creditor — your entire discharge could be denied. Even something as simple as moving your car to a relative’s house to prevent repossession could prevent you from getting a discharge.
Contact the Bankruptcy Experts at Wiggam & Geer, LLC
Declaring bankruptcy is a serious decision and not one that a person should rush into or take lightly. Even if you think that now is the right time for you to act, you should still consult with an experienced bankruptcy attorney before making any major financial or legal decisions. If you have any questions about bankruptcy or the bankruptcy process, please contact Wiggam & Geer at (404) 609-1300 or by visiting our website. Our law firm is dedicated to helping clients resolve their legal issues and putting their minds at ease.